SEC v. Heartland Advisors Inc.; William Nasgovitz; Paul Beste; Jilaine Bauer; Thomas Conlin; Greg Winston, et al., No. LR-18505, Eastern District of Wisconsin — Press Release
raw: Heartland Advisors et al.
Heartland Advisors et al., No. LR-18505
summary
The SEC charged Heartland Advisors Inc. and eight executives, including CEO William Nasgovitz and portfolio managers Greg Winston and Thomas Conlin, with fraudulently misrepresenting the NAVs of two high-yield municipal bond funds by hiding illiquid, unrated bonds and failing to adjust prices, leading to two massive devaluations in 2000, while insiders sold shares or tipped family members to avoid losses, resulting in SEC allegations of securities fraud, insider trading, and fiduciary breaches.
paragraph
The SEC alleged that Heartland Advisors and eight executives misrepresented the net asset values (NAV) of the Heartland Short Duration High-Yield Municipal Bond Fund and the Heartland High-Yield Municipal Bond Fund by falsely claiming to conduct rigorous credit research, manage risk, and maintain liquidity, when in fact the funds held mostly unrated, illiquid bonds and ignored clear market discounts. This deception led to two dramatic NAV drops—the September and October 2000 devaluations—after which the firm concealed the true causes, disguising fire sales as legitimate transactions. Insiders including Nasgovitz, Winston, Bauer, Della, and Krueger sold their shares or tipped family members to avoid losses, triggering SEC charges under Sections 10(b), 17(a), and 206 of federal securities laws, with the agency seeking disgorgement, interest, civil penalties, and permanent injunctions.
narrative
The SEC filed a civil complaint against Heartland Advisors Inc. and eight of its executives, including CEO William Nasgovitz, portfolio managers Thomas Conlin and Greg Winston, and others, for orchestrating a widespread fraud involving the deliberate misrepresentation of the net asset values (NAV) of two high-yield municipal bond funds. The firm falsely claimed in filings and promotional materials that it actively managed risk, performed intensive credit research, and maintained sufficient liquidity, while in reality holding a vast majority of unrated, illiquid bonds and refusing to adjust their prices despite clear market indications of steep discounts. This misconduct culminated in two massive NAV devaluations—in September and October 2000—after which Heartland Advisors misled investors by falsely attributing the drops to market conditions rather than its own pricing failures and sham bond 'sales' that were effectively short-term loans. Simultaneously, insiders including Nasgovitz, Winston, Jilaine Bauer, Kenneth Della, and Raymond Krueger liquidated their own shares or tipped family members to avoid losses, constituting insider trading. Director Hugh Denison was charged with failing to monitor liquidity and address pricing deficiencies, while the firm itself engaged in deceptive practices that forced the funds to borrow millions to meet redemptions. The SEC charged all defendants with violations of Sections 10(b), 17(a), 206, 34(b), and 36(a) of federal securities and investment company laws, seeking permanent injunctions, disgorgement of ill-gotten gains with pre-judgment interest, and civil penalties.
Classified market-manipulation(confidence 80%). EDGAR detection: forms SC 13D/G/13F· recall 53% / precision 9%. detection rule →
Statutes
Section 17(a) of the Securities ActSection 10(b) of the Securities Exchange ActSection 206 of the Investment Advisers ActSections 34(b) and 36(a) of the Investment Company ActSections 34(b) and 36(a) of the Investment Company ActSection 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 36(a) of the Investment Company ActSection 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 36(a) of the Investment Company ActSection 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 36(a) of the Investment Company ActSections 17(a)(2) and 17(a)(3) of the Securities ActSections 17(a)(2) and 17(a)(3) of the Securities ActRule 10b-5Rule 22c-1(a)
Parties
Securities and Exchange CommissionHeartland Advisors Inc.William NasgovitzPaul BesteJilaine BauerThomas ConlinGreg WinstonKevin ClarkKenneth DellaHugh DenisonRaymond Krueger
Keywords
heartland advisorsfundsheartlandadvisorsfunds'shares fundsinvestment companysecliquidated sharessecurities exchangeexchange thereundersecuritiesbondsbeste bauerbauer clark
Extracted insights
Entities 2
- company heartland advisors
- agency Securities and Exchange Commission
Triples 2
- SEC filed a civil injunctive action against Heartland Advisors Inc., William Nasgovitz, Paul Beste, Jilaine Bauer, Thomas Conlin, Greg Winston, Kevin Clerk, Kenneth Della, Hugh Denison and Raymond Krueger
- Heartland Advisors misrepresented the NAVs of two high yield municipal bond funds: the Heartland Short Duration High-Yield Municipal Bond Fund and the Heartland High-Yield Municipal Bond Fund
Extracted body text (5,189c)
The SEC announced that it filed a civil injunctive action in the Eastern District of Wisconsin against Heartland Advisors Inc. ("Heartland Advisors"), William Nasgovitz, Paul Beste, Jilaine Bauer, Thomas Conlin, Greg Winston, Kevin Clerk, Kenneth Della, Hugh Denison and Raymond Krueger. In its complaint, the SEC alleges that Heartland Advisors, through Nasgovitz, Beste, Bauer, Clark, Conlin and Winston misrepresented the NAVs of two high yield municipal bond funds, the Heartland Short Duration High-Yield Municipal Bond Fund and the Heartland High-Yield Municipal Bond Fund (the "Funds) and, in Commission filings and promotional materials, their efforts to manage certain risks associated with investing in the Funds. For example, Heartland Advisors represented that it was actively managing the Funds to minimize share price fluctuation when it was not doing so. Heartland Advisors also represented that it performed intensive credit research and limited the percentage of unrated high yield bonds held by funds. In reality, Heartland Advisors conducted inadequate research and the vast majority of bonds held by the Funds were unrated and relatively illiquid. Finally, Heartland Advisors misrepresented that it and the Funds' Board of Directors would monitor and maintain sufficient liquidity in the Funds' portfolio holdings to assure that the Funds would be able to meet redemptions. They did not do so. Instead the Funds had to borrow millions to meet redemptions. As a result, by mid-2000, the Funds were suffering a cash flow crisis. The SEC also alleges that the root of this problem was that Heartland Advisors, through Nasgovitz, Conlin, Winston, Beste, Bauer, Clark and Della, in order to protect the Funds' performance, refused or failed to adjust the prices of the Funds' securities despite numerous indications that the bonds held by the Funds could only be sold at substantial discounts to their carrying values. Heartland Advisors later arranged a purported "sale" of those bonds that, in reality, more closely resembled a short-term loan to temporarily infuse cash into the Funds. Nevertheless, the substantially discounted "sale" prices of those bonds caused the Funds' NAVs to drop materially on Sept. 28, 2000 (the September Devaluation). Thereafter, Heartland Advisors misrepresented to investors the cause of the September Devaluation. Faced with continuing redemptions and consequent cash flow problems, which caused it to consider suspending redemptions, on October 13, Heartland Advisors repriced most of the bonds in the Funds' portfolios by taking an across-the-board discount. This resulted in another substantial drop in the Funds' NAVs (the October Devaluation). Again, Heartland Advisors misrepresented the real reason for this drop in the Funds' NAVs. The complaint alleges that Denison, an associated Director of the Funds failed to adequately monitor the liquidity of the Funds and to take adequate steps to address the Funds' pricing deficiencies. Finally, the SEC alleges that while investors were kept unaware of the Funds' problems, Nasgovitz tipped Krueger about the Funds' continuing liquidity and/or pricing problems prior to the September Devaluation, and Krueger liquidated his shares in one of the Funds. In addition, with knowledge of the Funds' continuing liquidity and pricing problems: Winston, a portfolio manager of the Funds, liquidated his shares in the Funds and tipped his family to liquidate their shares in one or more of the Funds, or a related fund; Bauer liquidated her shares in one of the Funds; and Della liquidated his shares in the Funds and redeemed his father's shares in a related fund. The SEC charged: Heartland Advisors with violations of Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, Section 206 of the Investment Advisers Act of 1940 (Advisers Act), Sections 34(b) and 36(a) of the Investment Company Act of 1940 (Investment Company Act) and Rule 22c-1(a) promulgated thereunder; Nasgovitz, Conlin, Winston, Beste, Bauer, and Clark with violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 34(b) and 36(a) of the Investment Company Act, and aiding and abetting violations of Section 206 of the Advisers Act; Della with violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 36(a) of the Investment Company Act and aiding and abetting violations of Section 206 of the Advisers Act; Krueger with violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and Denison with violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 36(a) of the Investment Company Act. The SEC seeks an order of permanent injunction, disgorgement plus pre-judgment interest of the defendants' ill-gotten gains, including insider trading losses avoided from those defendants charged with insider trading, and civil penalties from all of the defendants for their violations. SEC Complaint in this matterOCR text (5,189c · plain-text · 99% conf)
The SEC announced that it filed a civil injunctive action in the Eastern District of Wisconsin against Heartland Advisors Inc. ("Heartland Advisors"), William Nasgovitz, Paul Beste, Jilaine Bauer, Thomas Conlin, Greg Winston, Kevin Clerk, Kenneth Della, Hugh Denison and Raymond Krueger. In its complaint, the SEC alleges that Heartland Advisors, through Nasgovitz, Beste, Bauer, Clark, Conlin and Winston misrepresented the NAVs of two high yield municipal bond funds, the Heartland Short Duration High-Yield Municipal Bond Fund and the Heartland High-Yield Municipal Bond Fund (the "Funds) and, in Commission filings and promotional materials, their efforts to manage certain risks associated with investing in the Funds. For example, Heartland Advisors represented that it was actively managing the Funds to minimize share price fluctuation when it was not doing so. Heartland Advisors also represented that it performed intensive credit research and limited the percentage of unrated high yield bonds held by funds. In reality, Heartland Advisors conducted inadequate research and the vast majority of bonds held by the Funds were unrated and relatively illiquid. Finally, Heartland Advisors misrepresented that it and the Funds' Board of Directors would monitor and maintain sufficient liquidity in the Funds' portfolio holdings to assure that the Funds would be able to meet redemptions. They did not do so. Instead the Funds had to borrow millions to meet redemptions. As a result, by mid-2000, the Funds were suffering a cash flow crisis. The SEC also alleges that the root of this problem was that Heartland Advisors, through Nasgovitz, Conlin, Winston, Beste, Bauer, Clark and Della, in order to protect the Funds' performance, refused or failed to adjust the prices of the Funds' securities despite numerous indications that the bonds held by the Funds could only be sold at substantial discounts to their carrying values. Heartland Advisors later arranged a purported "sale" of those bonds that, in reality, more closely resembled a short-term loan to temporarily infuse cash into the Funds. Nevertheless, the substantially discounted "sale" prices of those bonds caused the Funds' NAVs to drop materially on Sept. 28, 2000 (the September Devaluation). Thereafter, Heartland Advisors misrepresented to investors the cause of the September Devaluation. Faced with continuing redemptions and consequent cash flow problems, which caused it to consider suspending redemptions, on October 13, Heartland Advisors repriced most of the bonds in the Funds' portfolios by taking an across-the-board discount. This resulted in another substantial drop in the Funds' NAVs (the October Devaluation). Again, Heartland Advisors misrepresented the real reason for this drop in the Funds' NAVs. The complaint alleges that Denison, an associated Director of the Funds failed to adequately monitor the liquidity of the Funds and to take adequate steps to address the Funds' pricing deficiencies. Finally, the SEC alleges that while investors were kept unaware of the Funds' problems, Nasgovitz tipped Krueger about the Funds' continuing liquidity and/or pricing problems prior to the September Devaluation, and Krueger liquidated his shares in one of the Funds. In addition, with knowledge of the Funds' continuing liquidity and pricing problems: Winston, a portfolio manager of the Funds, liquidated his shares in the Funds and tipped his family to liquidate their shares in one or more of the Funds, or a related fund; Bauer liquidated her shares in one of the Funds; and Della liquidated his shares in the Funds and redeemed his father's shares in a related fund. The SEC charged: Heartland Advisors with violations of Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, Section 206 of the Investment Advisers Act of 1940 (Advisers Act), Sections 34(b) and 36(a) of the Investment Company Act of 1940 (Investment Company Act) and Rule 22c-1(a) promulgated thereunder; Nasgovitz, Conlin, Winston, Beste, Bauer, and Clark with violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 34(b) and 36(a) of the Investment Company Act, and aiding and abetting violations of Section 206 of the Advisers Act; Della with violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 36(a) of the Investment Company Act and aiding and abetting violations of Section 206 of the Advisers Act; Krueger with violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and Denison with violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 36(a) of the Investment Company Act. The SEC seeks an order of permanent injunction, disgorgement plus pre-judgment interest of the defendants' ill-gotten gains, including insider trading losses avoided from those defendants charged with insider trading, and civil penalties from all of the defendants for their violations. SEC Complaint in this matter